BERLIN (Reuters) - Germany’s economic upswing will lose some momentum in coming months after Europe’s biggest economy enjoyed a solid start to the year, the Finance Ministry said in its monthly report on Monday.
The economy grew by 1.9 percent in 2016, the strongest rate in five years, helped by soaring private consumption, higher state spending and increased construction activity.
In the first three months of 2017, the economy picked up further speed, with its quarterly growth rate increasing to 0.6 percent from 0.4 percent in the fourth quarter of 2016.
“Favorable macroeconomic conditions such as brighter sales prospects at home and abroad, low interest rates as well as moderate energy prices suggest that the overall economic upturn should continue throughout the rest of the year, although with less momentum than in the first quarter,” it said.
“Forward-looking economic indicators such as industrial orders as well as the improvement in sentiment of companies and consumers also support this expectation,” the ministry added.
The upswing has become more broad-based as companies hiked investments in machinery and buildings, consumers and state authorities continued to spend, and stronger exports also contributed to overall economic growth.
Still, the Finance Ministry stuck to the government’s economic growth forecasts of 1.5 percent this year and 1.6 percent next, both figures unadjusted for workdays.
Germany’s prolonged upturn is boosting tax income as more people join the labor market, consumers continue to splash out and firms are able to increase their profits.
From January to April, tax revenues of the federal government and the 16 regional states rose 6.5 percent year-on-year, the ministry said. That is comfortably above the projected rise of 3.9 percent for the whole year.
Buoyant tax revenue has enabled Chancellor Angela Merkel’s government to raise spending on roads and bridges, faster internet connectivity, social housing and the integration of refugees, without taking on new debt.
This means Finance Minister Wolfgang Schaeuble can stick to the domestically popular but internationally criticized goal of a balanced budget, known as ‘Schwarze Null’ or black zero, before federal elections in September.
The International Monetary Fund and the European Commission have both urged Germany to invest more to stimulate more domestic demand and boost overall growth in the euro zone.
Reporting by Michael Nienaber; Editing by Hugh Lawson